US trade deficit falls to $34.2 billion in June, lowest since late 2009, as exports hit record

CP

WASHINGTON - The U.S. trade deficit narrowed sharply in June to its lowest level in more than 3 1/2 years. Exports rose to all-time high and imports declined, signs that economic growth could be stronger than previously thought.

The Commerce Department said Tuesday that the June deficit fell 22.4 per cent to $34.2 billion. That's the lowest since October 2009 and down from May's imbalance of $44.1 billion, which was revised lower.

Imports dropped 2.5 per cent to $225.4 billion. Oil imports declined to the lowest level in more than two years.

A smaller trade deficit lifts growth because it means consumers and businesses are spending less on foreign goods than companies are taking in from overseas sales. The steep decline in the June deficit could lead the government to revise its growth estimate for the April-June quarter a little higher.

Last week the government said the economy grew at a lacklustre annual rate of 1.7 per cent in the second quarter, in part because trade cut nearly a full percentage point from growth. But the government estimated the June trade figures when calculating its first read on economic growth. The government will offer a more complete estimate for second quarter growth on Aug. 29. That will include June's upbeat trade figures.

Pierre Ellis, an economist at Decision Economics, said the trade data could add 0.2 percentage point to 0.5 percentage point to growth. He said the estimate could be on the lower end if businesses held lower stockpiles in June after shipping more goods.

Many economists think overall economic growth has started to rebound in the July-September quarter. Some say growth could near a 3 per cent annual rate. A key reason is that several export markets, including Europe, are seeing improvement.

For June, U.S. exports to the 27-nation European Union rose 1.5 per cent. That helped shrink the deficit with the region to $7.1 billion.

The deficit with China fell 4.3 per cent to $26.6 billion. Through the first six months of this year, the imbalance with China is running 1.9 per cent above the same period a year ago.

America's deficit with Japan rose 2.2 per cent to $5.5 billion in June. The imbalance with Canada dropped 13.7 per cent to $1.6 billion. The deficit with Mexico fell 9.6 per cent to $4.8 billion in June.

U.S. factories are already starting to show more strength after slumping earlier this year, helped by increases in business spending and less drag from government cuts.

Activity at U.S. factories increased in July at the fastest pace in two years in July, according to the Institute for Supply Management's closely watched manufacturing index.

And U.S. factories added 6,000 jobs in July, the Labor Department said Friday. That was the first month of manufacturing job growth since February.